TCS Bank: Ongoing Strong Business Growth. Eurobonds are Interesting

TCS Bank has recently released IFRS 2012 results. During last year the bank continued to post upbeat business growth. Thus, the total loan portfolio increased almost twice y/y, having reached 52.0 billion rubles ($1.71 billion).

The bank managed to substantially increase its capital adequacy ratio via a subordinated Eurobond in the amount of $125.0 million. Н1 ratio rose to 17.4% (+3.7 p. p.).

Cash balance is currently fully covering the bond debt outstanding in 2013, and there is little risk of refinancing in the near term.

Loans/deposits ratio remains very high, which is the evidence for the bank’s dependence on public debt markets.

The bank has three issues now circulating in the Eurobond market. TCS Bank-14 with the duration of about a year is yielding slightly over 6.0% per annum; our recommendation is buy and hold to maturity.

The Eurobond TCS Bank-15 is interesting due to its price upside potential. Thus, the spread to Promsvyazbank’s yield curve is now 230 b. p. We do not rule out spread narrowing to 200 b. p. and 0.5–0.6% price growth.

Lately, the subordinated TCS Bank-18 worth $200.0 million is now the highest-yielding Eurobond in the Russian market with the yield of 11.4% per annum. Meanwhile, the spread between the issue and the subordinated Russian Standard-18 is now 300 b. p., which we find unjustified. We believe the spread may narrow to 230–250 b. p. We recommend buying TCS Bank-18 to risk-taking investors and draw their attention to the issue’s low liquidity.